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BILL ACKMAN: There's one 'last piece of unfinished business' from the financial crisis

The “last piece of unfinished business” from the financial crisis is Fannie Mae (FNMA) and Freddie Mac (FMCC), according to Bill Ackman, the founder and CEO of $11 billion hedge fund Pershing Square Capital Management.

“We think all of the conditions necessary for a resolution of Fannie and Freddie are here,” Ackman told Yahoo Finance. “I would say it’s the most interesting risk-reward in our portfolio.”

Fannie and Freddie are government sponsored entities (GSEs) that package mortgages into mortgage-backed securities (MBS), which in turn get sold to investors like bonds.

“Those mortgage securities are backed by mortgages on single family homes that are owned by middle class borrowers that are pretty creditworthy,” Ackman said. “So it’s a very, very safe business.”

Their role in the housing market meant they were exposed when the bubble popped and the financial markets spiraled into crisis. The Treasury placed Fannie and Freddie into conservatorship in early September 2008 amid concerns about their capital. At the time, though, the GSEs met their statutory capital requirements, but then-Treasury Secretary Hank Paulson called those capital requirements “thin and poorly defined as compared to other institutions.”

Fannie and Freddie incurred large credit-related losses. But by 2012, home prices had bottomed out, and Fannie and Freddie were making money again. In August 2012, the Treasury amended the terms of its senior preferred stock agreement, requiring the GSEs to pay “net-worth sweep.” In other words, Fannie and Freddie are required to pay the government dividends equal to 100% of earnings.

Fannie Mae headquarters is seen in Washington, DC, U.S. on February 21, 2014. REUTERS/Kevin Lamarque/File Photo

Collectively, Pershing Square’s investment in the GSEs represents about 6% of the fund’s capital. They’re trading at about $3 per share. Ackman thinks Fannie and Freddie could trade in the mid-teens should a resolution be reached and they become public companies again in a re-privatization.

“It should get resolved before the next recession hits, because when the next recession hits they’re not going to be able to raise the money to protect the tax payer,” Ackman said.

It’s been nine years and Fannie and Freddie still operate in a state of conservatorship. They’ve repaid the $185 billion in bailouts they’ve received and they’ve returned to profitability, making billions in profits all of which goes directly to the Treasury as a way to reduce the deficit.

“The government’s recovered its entire investment with a 10% return, which has been one of the great investments of all time, because on top of that, the government owns about 80% of both companies,” Ackman said.

At the moment, shareholders, like Ackman’s Pershing Square, don’t benefit.

Treasury Secretary Steven Mnuchin has said reform of the GSEs is a 2018 issue.

—Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.